Sequester doesn't add up for IGs

Billions could be lost due to cuts

May. 20, 2013 - 06:00AM
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General Services Administration Inspector General Brian Miller expects the sequester to cost GSA $281 million in lost savings and revenue in 2013. (Staff)

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The inspector general for the General Services Administration expects to lose out on more than a quarter-billion dollars in potential government savings next year, as the sequester-related budget cuts force the agency to scale back on efforts to uncover waste and fraud for taxpayers.

The estimate, which came in response to a recent congressional inquiry, provides some hard numbers to an emerging concern in the IG community: that short-term sequester IG budget cuts will lead to long-term losses for agencies.

“Our audit staff has been particularly hit hard,” GSA IG Brian Miller wrote in a April 22 letter to Sen. Jeanne Shaheen, D-N.H. Citing “strained resources,” Miller told Shaheen that his office projects a $281 million reduction for fiscal 2014 in financial recommendations, cost avoidance and recoveries from his audit office alone.

Shaheen sent letters to IGs across government last month asking about the impact of the sequester. Several IGs contacted by Federal Times, including the Defense Department, said they’re still finalizing responses.

“The inspectors general response to my inquiry overwhelmingly confirms that the sequester is doing more harm than good,” Shaheen said in a May 17 statement to Federal Times.

Federal IGs uncovered more than $93 billion in potential savings in fiscal 2011, resulting in a $35 return for every $1 invested in IG operations, according to the latest annual report by the interagency Council for Inspectors General.

By that estimate, the approximately $100 million in sequester cuts affecting IGs would mean about $3.5 billion in potential missed cost savings.

At the same time, however, one former IG expects the sequester will result in an increasing workload.

Eric Feldman, former IG for the National Reconnaissance Office, said it is more important now to maintain a robust IG presence to keep an eye on federal activities and contractors.

That is because steep budget cuts will pressure people more to take shortcuts and maybe even break the law.

“The one thing people aren’t talking about is the impact of sequestration on ethical behavior,” he said. “Contractors are scared and hungry and the competition is going to increase and the dollars are decreasing.”

Feldman now is managing director for corporate ethics and compliance programs at Affiliated Monitors Inc.

“You’re going to have individuals within companies who may start doing the wrong thing for what they perceive as the right reasons — saving jobs, saving their particular business unit — and that pushes people closer and closer to the ethical line in order to capture business,” he said.

The result: “There are going to be more and more allegations of wrongdoing,” Feldman predicted.

Indeed, of particular concern to GSA’s Miller is the fact that fewer auditors will be available to work on contract audits and internal audits to help the Justice Department on False Claims Act investigations involving federal contractors.

The GSA IG office oversees an agency of 12,000 employees and more than $50 billion in contract dollars.

Miller told Shaheen that the sequester comes at a bad time as GSA is wrapping up numerous Recovery Act-funded construction projects. As a result, his office’s workload in construction claims filed by contractors stemming from disputed costs is expected to skyrocket, he said.

GSA relies on the IG’s office to defend, negotiate and settle contractor disputes.

Miller expects claims to be filed by contractors against the government on eight projects in the next year, but he said the number could increase exponentially as more construction work is completed. “With sequestration, however, our resources will be severely decreased, thereby limiting our ability to perform these crucial audits,” Miller told the senator.

Like the GSA IG, the Small Business Administration’s watchdog office has oversight of contracts across government, overseeing SBA’s small and disadvantaged set-aside program. Small and disadvantaged firms received $91.5 billion in federal contarcts in 2011, according to SBA.

In a letter to Shaheen, SBA IG Peggy Gustafson wrote that a 5 percent reduction in her office’s budget would mean the loss of about $868,000 — the equivalent of 10 staff positions for seven months.

Gustafson said there are no metrics to gauge how much money will not be recovered as a result of the sequester. But, she said, the value of each employee “cannot be overemphasized,” noting that one criminal investigator in her office helped untangle a conspiracy involving SBA-backed loans valued at more than $100 million.

In another example, Education Department IG Kathleen Tighe told Shaheen that the sequester has forced her office to cancel contractor support on analytical tools that help better target audit and investigative work. Staff and resource reductions will force investigators to be more selective about the types and locations of cases the IG opens. The lack of money also would leave the IG less nimble to handle unplanned work requested by lawmakers.

In his letter to Shaheen, EPA IG Arthur Elkins Jr. projected $9.5 million could be lost through missed savings, fines, penalties, civil judgments and other costs.

Transportation IG Calvin Scovel III told Shaheen that his office is curtailing or delaying several audits, including oversight of $300 million in motor carrier safety grants. Other delayed audits include reviews of cockpit automation issues and the Federal Aviation Administration’s implementation of its Next Generation Air Transportation System modernization program.

Scovel also said from October 2011 to March 2013 his office has seen a 47 percent decline in the number of new investigations, with a big drop in financial recoveries, too.

Shaheen’s letter cites testimony to the Senate Appropriations Committee in February by Housing and Urban Development Secretary Shaun Donovan, who said the sequester would “lead to even greater losses to the taxpayer than we are gaining by making these cuts.”

Agriculture Department IG Phyllis Fong told a Senate appropriations panel May 9 that her office is operating at its lowest staffing since 1963. “The availability of staff and travel resources has become a key consideration in determining which audit and investigative matters OIG can undertake,” she said.

Most IGs will see cuts of roughly 5 percent, though the Defense Department IG office will absorb a 7.8 percent cut of $28 million. Not all IGs will be impacted. The Department of Veterans Affairs’ IG office, for example, is exempted from sequestration cuts.